A Simultaneous Equation Analysis of Advertising, Concentration and Profitability

Pagoulatos, Emilio; Sorensen, Robert

doi:10.2307/1057367

Cited by 55 publications

(20 citation statements)

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“…Soon this branch of literature also expanded to the food sector since this is often characterized by substantial market power, as Sutton (1981) pointed out. Pagoulatos and Sorensen (1981) Lopez' (1985) study focuses on the food processing sector in Canada while Cotterill (1986) investigates market power in the food retail sector and brings evidence from Vermont local markets; Angrist, Graddy and Imbens (2000) analyze the demand for whiting in the Fulton fish market, Karp and Perloff (1989) study the oligopolistic rice export market, Wann and Sexton (1992) analyze multiproduct food industries with application to pear processing in California, and Nevo and Wolfram (2002) and 'comprehensive data about output and prices needed to estimate the demand and supply functions might not be available. 'Reiss and Wolak (2004) mention that the absence of relevant data can considerably complicate estimation and limit what it is that the researcher can estimate with the available data.…”

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confidence: 99%

“…In addition, being of larger size might well increase the ability to counter the bargaining power of retailers. Many studies have shown, that especially within the food sector, advertising intensity acts as a barrier to entry that leads to higher firm profit margins and is therefore a crucial firm characteristic (see Comanor and Wilson 1967, Sigfried and Weiss 1974, Pagoulatos and Sorensen 1981, Sutton 1991.…”

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The Determinants of Firm Profitability Differences in EU Food Processing

Hirsch¹,

Schiefer²,

Gschwandtner³

et al. 2014

J Agricultural Economics

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1 Industry, firm, year, and country effects on profitability in EU food processing This paper decomposes the variance in food industry return-on-assets into year, country, industry, and firm effects. Besides these main effects, we include several interactions and discuss their theoretical foundations. After determining effect significance in a nested ANOVA with a rotating pattern of effect introduction, we estimate effect magnitude using components of variance in a large sample of corporations. The results show that firm characteristics are more important than industry structure in determining food industry profitability in Europe. Main effects and interactions of year and country membership are weak, indicating that performance differentials can poorly be explained by macroeconomic and trade theory. Key words: ROA, decomposition, variance components, MBV, RBV.Running head: Industry, firm, year, and country effects on profitability JEL: L00, C22 Introduction 'There are many theories because each is based on different assumptions about the world; it is theirrelevance rather than their logic which is in dispute. ' (Cook, 1958: 16).In a perfectly competitive market, firm performance that deviates from the average should not exist in the long run. However, such deviations are not an exception to the rule but in fact the norm, especially in industries characterized by high sunk costs or other impediments to competition as the food sector seems to be. The ability of firms to 2 earn returns persistently above the norm has been widely analyzed.1 While the so-called 'market-based view', which draws heavily on Industrial Organization (IO) theory, mainly attributes such 'abnormal' profits to industry characteristics, proponents of the 'resource-based view' assume that performance differentials can be better explained by firm properties. 2 In order to resolve this debate, a series of contributions following Schmalensee's (1985) seminal paper has used components-of variance analysis (COV) and nested (i.e. hierarchical) analysis of variance (ANOVA) techniques to decompose the variation in firm profitability into firm and industry specific effects. Subsequent papers have also looked at the impact of year and, more recently, of country effects on firm profitability. While the influence of country and country-industry interactions on the variation in profitability can be explained by models developed in trade theory, the aforementioned body of literature has paid little attention to the theoretical foundations 1 (e.g. Barney 1991, Bowman and Helfat 2001, Brush, Bromiley and Hendrickx 1991, Geroski and Jaquemin 1988, Gschwandtner 2005, Goddard and Wilson 1999, Mahoney 1995, McGahan and Porter 1997, 1999, 2003, Mueller 1977, 1990, Odagiri and Maruyama 2002, Roquebert, Phillips and Westfall 1996, Rumelt 1991, Schmalensee 1985, Teece, Pesano and Shen 1997, Waring 1996, Werenfelt 1984.2 Examples for studies that support the 'market-based view' are: Caves and Porter (1977), McGahan and Porter (1999), Schmalensee (1985), Slat...

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confidence: 99%

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confidence: 99%

The Determinants of Firm Profitability Differences in EU Food Processing

Hirsch¹,

Schiefer²,

Gschwandtner³

et al. 2014

J Agricultural Economics

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“…Barney 1991;Grant 1991. Several previous analyses based on these theories (e.g., Pagoulatos and Sorensen 1981;Zellner 1989;Cotterill and Clement 1993) show that the main determinant of profitability for the company is either market share or price-cost margins (efficiency hypothesis). Moreover, some results show the advantages of product differentiation to determine profitability (i.e., market power hypothesis), but they also determine the positive effects of this differentiation on the market share in a different context of market concentration (Clarke et al 1984;Martin 1993).…”

Section: The Resource-based View and Endogeneity Of Competitive Variamentioning

confidence: 97%

“…Several studies on the agrifood market conclude that the influence of market share and product differentiation on profitability is correlated (Pagoulatos and Sorensen 1981;Cotterill and Clement 1993;Vlachevei and Oustapassidis 1998). The dependence among the different competitiveness variables implies the application of simultaneous analyses, taking into account endogeneity (e.g., Zellner 1989;Oustapassidis et al 2000;Al-Tuwaijri et al 2004).…”

Section: Framework and Measuresmentioning

confidence: 99%

Does an Endogenous Relationship Exist between Environmental and Economic Performance? A Resource-Based View on the Horticultural Sector

Gómez

2007

Environ Resource Econ

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“…For example, Lambin (1976) estimates simultaneous equations using European brand-level data in the 1960s, but finds little evidence that advertising affects sales, especially in saturated industries. Pagoulatos and Sorensen (1981) estimate three equations of profitability, advertising, and concentration simultaneously and conclude that advertising affects profitability, which in turn affects both advertising and concentration. In addition to proposing a simultaneous equation model, their empirical contribution is to take into consideration several key control variables (i.e., international trade and interindustry differentials in price elasticities of demand) that had been missing in the previous studies.…”

Section: Introductionmentioning

confidence: 99%